'Tis the season....for mortgage refinancing?

Dear Readers,

Attached is a great article about refinancing your home's mortgage. If you bought in the last two years at a higher rate, perhaps now is the time to take advantage of better terms and maybe evenelimimate your second mortgage or HELOC if your home's value has risen enough to get you under the 80% loan-to-value mark.

By Kenneth R. Harney
Syndicated Columnist

You may be thinking Christmas, Hanukkah, Kwanzaa and sugarplums, but thousands of fellow homeowners have been thinking refis, rate reductions, cash-outs and money-saving debt consolidations.

For the past two weeks, they've been bombarding lenders with applications for mortgage refinancing — driven by the most attractive rates in the marketplace in more than a year. Refinancings were up in mid-December by 60 percent over the same period last year, and they accounted for more than half of all home mortgage applications — the highest since spring 2004. Thirty-year fixed-rate loans slipped below 6 percent two weeks ago, and although they've rebounded slightly, they are still nearly a percentage point below where they were over the summer.

Fifteen-year fixed-rate loans in the mid-to-upper 5 percent range are readily available to applicants with solid credit.

Could a holiday-season refi be in the cards for you? Maybe, but it probably depends on whether you fit into one of several categories where today's rates make a lot of sense:

• You've got an adjustable-rate mortgage that's facing a "reset" into higher payments in the six months ahead. Your loan might be a payment-option mortgage, an interest-only mortgage originated in 2003 or 2004 with a three-year reset, or simply an ARM tied to short-term Treasury rates that's already costing you more than the fixed-rate alternatives.

• You've got a "piggyback" first- and second-mortgage package that was originally intended to let you purchase your house with a minimal or zero down payment while avoiding mortgage insurance premiums. But now the floating-rate second is above 8 percent and you want to bail.

• You need cash for a home- improvement project, a business investment or to buy a vacation home that's now available at a bargain price. Even though the fixed rate on your first is below 6 percent, the opportunity to cash out thousands of dollars and refinance into a larger replacement first mortgage is compelling.

So many current homeowners fit into these categories that Anthony Hsieh, president of LendingTree.com, predicts that this month's refi boomlet could stretch into 2007 — provided, of course, that rates remain close to 6 percent.

"This [boom] has legs," he said. "This is no head fake — it's for real."

For example, Douglas Duncan, chief economist for the Mortgage Bankers Association of America, estimates that $1.1 trillion to $1.7 trillion of adjustable-rate mortgages are scheduled for payment resets in the coming 12 months and that $600 billion to $700 billion is likely to be refinanced by homeowners eager to avoid higher monthly outlays.

Some loans are "nontraditional" mortgages that combine low initial payment periods with drastically higher payments after several years. For thousands of those borrowers facing big payment jumps, a refi into a fixed-rate mortgage is a no-brainer, Duncan said.

Other people who purchased during the housing boom using popular "3/1" adjustables in the mid-4 percent range for the initial three years now face significantly higher payments because short-term interest rates are much higher.

Consider this example from LendingTree: Say you bought your house in late 2003 with a $200,000 "3/1" adjustable at 4.375 percent with a margin of 3.75 percent and a 20 percent down payment. Your principal and interest payments have been $998.57 for the first three years. But now you face a reset into a 7.53 percent rate on your $197,000 balance — and a monthly payment increase of $383.

Your heads-up alternative: Refinance into a new 30-year fixed-rate $197,000 mortgage at 6.1 percent. Sure, your payment will be $196 higher than it is at your 4.375 percent rate, but not what you'd pay if you stuck with your current loan and its new rate.

Here's another scenario: Say you've got a great rate on the $200,000 first mortgage that you took out in 2002 — 5.5 percent. But you need $25,000 cash for remodeling or a business investment. On the one hand, you hate to get rid of a once-in-a-lifetime 5.5 percent rate. On the other hand, you have the opportunity to pull out the $25,000 with a refi, add it to the $192,500 balance on your current loan, and walk away with a new $217,500 replacement mortgage at 6.1 percent fixed for 30 years.

Your new monthly payment: About $184 more.

A gift from Santa? Hardly. Cash-out refis cost money. But your 6.1 percent fixed rate — not far above 40-year record lows — should still look good years from now.

Kenneth R. Harney: kenharney@earthlink.net
Copyright © 2006 The Seattle Times Company

Private Mortgage Insurance (PMI) Now Tax-Deductible!

Good News from congress today!

Congress has changed tax law to allow PMI to be deducted from income taxes just like mortgage interest! To qualify, the household must earn less than $100,000 per year and the loan must be originated in 2007.

What is PMI? PMI, or Private Mortgage Insurance, is a monthly fee charged by lenders when a customer takes out a single loan for more than 80% of a home's value. In recent years, many people buying homes have had to take out second mortgages because they could not afford to put 20% down.

In order to avoid paying PMI of up to a couple of hundred dollars per month, buyers opted to take out 2nd mortgages like Home Equity Lines of Credit (HELOC), where the interest paid is tax-deductible. The down side to HELOC's, however, is that they are like credit cards, with interest rates that rise and fall with the Prime Rate.

So what does all of this mean to home buyers?

Primarily, it means that mortgage options that include standard Private Mortgage Insurance will now become much more competitive and attractive, especially as PMI can often be removed with sufficient property appreciation or declining loan balance, assuming timely payments.

Since clients traditionally have turned to "piggyback" second mortgages as a way to avoid mortgage insurance, this news is particularly welcome, as second mortgage rates have risen dramatically in recent years.

This piece of legislation still requires President Bush's signature, but at this time there is no indication that he will not sign it. Also, the current legislation applies to new loans closed in 2007 only, and as such, will require another act of Congress to be extended to 2008 and beyond.

Happy Home Buying!
Tim Andrews & Keith Zeiler
www.tk2homes.com

5 tips for selling a home in a buyer's market

Home sellers take note: Buyers are gaining more leverage.

In many real estate markets during the last three years, sellers have wielded more power than buyers. That's still the case, but now buyers are choosier, homes are staying on the market longer, and prices aren't rising as quickly as they once did.

"It's a seller's market transitioning to a buyer's market," says David Lereah, chief economist for the National Association of Realtors. Sellers are reluctant to drop their asking prices, but a lot of them might have to "because the buyers now have a little more control, a little more power."

Prepare yourself mentally
Accept that the market will set the sale terms. Don't take it personally if you don't get the price you expected. "The big thing is you've got to accept what the market is, and make the most of it," says Jeff Lyons, general manager of RealEstate.com. "It doesn't have anything to do with you personally; it has to do with the market."

He advises sellers not to expect an extension of the supersonic price appreciation that some markets saw in the last couple of years. As Lyons puts it, you're just going to feel frustrated if you think, "last year, everyone's house was worth 20 percent more than the year before, so why isn't my house worth 20 percent more this year?"

Lyons adds: "You're going to want to prepare to be flexible." Luckily, you can be flexible on things besides price. The move-in date, for example. "If it helps you sell more quickly by moving out earlier than you want, that's a good thing," Lyons says. "You never know what people might want to do to make it convenient for them. If the buyer wants something that isn't hard for you to give, that's something in your favor."

Maybe the buyer wants to store furniture in your garage before moving in or wants to make the purchase contingent on selling his or her own house. If you have flexibility, you have an edge.

Get ready for picky buyers
Every real estate agent will tell you to improve the home's curb appeal. It's even more important when buyers feel that they can afford to be picky.

In a transition from a seller's to a buyer's market, buyers "become much more sensitive to things like dated light fixtures," says David Kerr, agent for ZipRealty's office in Oakland, Calif. "When you walk in and the house has that 1970s amber light fixture, they'll say, 'This house looks old,' and walk out. It's easy and inexpensive to replace that light over the dining room table."

Kerr isn't talking only about lights. Stained carpets, scuffed hardwood floors, dripping sinks, torn window screens -- most of us live with flaws in our homes that we intend to fix eventually. When you put your home on the market, that day has arrived.

"You really need to look at making repairs that are profitable in terms of selling the house," Kerr says. He gives this example of choosing your priorities: If your hot tub isn't quite functioning properly and the bathroom has old, stained cabinets with ornate pulls on the doors, fix up the bathroom first. "They want to see that pedestal sink," Kerr says. If the choice is between replacing the refrigerator and refacing ugly kitchen cabinets, spruce up the cabinets.

Educate yourself about your neighborhood's real estate market
Perch yourself on the real estate grapevine by talking to neighbors and real estate agents about sales in your neighborhood.

Do homes tend to sell for 2 percent over the listing price, or 5 percent under, or what? Was a house recently sold for a surprisingly low price? Maybe the owners sold it to their own kids, a young family without much money. Or maybe it was a "short sale" to avoid foreclosure. That's a good piece of knowledge to have when a buyer tries to use that low sale price against you in negotiations.

Interview at least two, and preferably three or four, potential listing agents, and ask them to prepare competitive market assessments. The agents will look at comparable homes that have been sold recently and at homes that are for sale now, and recommend a listing price and a marketing plan. "Have them walk through the information they used to come up with that estimate," Lyons says.

You don't necessarily want to pick the agent who recommends the highest listing price. You're making a hiring decision, which is an art and not a science. Hire an inspectorBuyers often make the purchase offer contingent on the home passing an inspection to their satisfaction. Increasing numbers of sellers are hiring inspectors before they put their houses on the market.

An inspector is impartial. "He'll be able to tell you if the roof needs work, or small electrical things that need to be done, or plumbing things," Kerr says. Once you have identified and fixed the problems, "it makes the house that much more attractive to a would-be buyer."

An inspector might spot flaws that would be obvious to a buyer, but that you no longer notice. A good real estate agent does the same, but an inspector will look deeper.

Consider paying the buyer's discount points
Paying points is an incentive you can offer to a buyer, and Uncle Sam sweetens the deal.

Let's say the buyer wants you to drop the price by 3 percent. You're firm on the price but are willing to be flexible by working mojo with the buyer's interest rate and tax bill.

You offer to pay 3 discount points and lower the buyer's mortgage rate three-quarters of a percentage point, give or take a quarter-point. By paying the discount points instead of selling for less, you get your price, the real estate agents get bigger commissions, and the buyer makes lower monthly payments and gets to deduct the points from income taxes.

That's right. You pay the discount points, but the buyer gets the tax deduction.

"It's a win-win-win-win deal," says Bob Walters, economist for Quicken Loans.

Kerr doubts that the time is right for offering discount points. "The market hasn't gotten there yet," he says. When it becomes a pronounced buyer's market, or when mortgage rates rise a couple of percentage points, that will be prime time for sellers to pay discount points.

Whether or not you pay the buyer's discount points, you put yourself in the right frame of mind by merely considering the option. It makes you think like a buyer -- and that gives you a competitive edge.

Happy Selling!
Keith & Tim

This article by Holden Lewis of Bankrate.com

Latest Stats from the Northwest Multiple Listing Service

Here's a brief recap of November's activity and the general health our our local real estate market:

• Brokers added about the same number of new listings to inventory in November 2006 as they did in November 2005
• In King County, home prices jumped 13.6%, with the median price climbing from $350,000 to $397,500.
• Pending sales dropped from last year's volume, which set records in November.
• For buyers, the news is good because inventory is 35% greater than a year ago, so there are more homes to choose from available on the market.
• 8,453 listings were added to inventory last month, nearly matching the volume of a year ago when 8,560 listings were brought onto the market in November. With those additions, the inventory rose to 31,874 active listings, up about 35% from a year ago.
• Sales price appreciation for closed sales (completed transactions) of condos outpaced single family homes, with prices increasing, on average, more than 21% over November 2005.
• The market is normalizing, becoming more balanced for both buyers and sellers.

Have a question, comment or concern about our local real estate market? Post a comment or contact us for a personal consultation!

Accountants Offer Year-End Tax Saving Tips

Want to save some tax dollars? The National Society of Accountants offers these end-of-the-year savings tips for business owners:

1. Buy now. Make payments in 2006 for 2007 needs, including office supplies, repairs, maintenance and advertising.

2. Set up a retirement plan. Opening an SEP or an IRA can lop a mint from your tax bottom line.

3. Write off bad debts. If you use the accrual basis to account for income, then you can deduct bad debts when they are partially or totally worthless.

4. Review building depreciation. If your business has purchased or substantially renovated a building, get your accountant to analyze its components to see if any or all of it qualifies for a shorter depreciation schedule.

5. Shift how you do business. Tax laws change, so it could be time for you to switch from sole proprietor to c-corporation or s-corporation.

6. Take a hard look at your accountant. Is he doing the job or should you find someone who better understands your business?

Source: Orlando Sentinel, Sara Isaac (12/4/2006)

Washington 5th in Home Price Gains

From the NWREporter

Home prices in Washington increased 16.35 percent from a year ago, more than twice the national rate. Only Idaho, Utah, Arizona and Oregon outgained Washington.

Among 379 Metropolitan Statistical Areas (MSAs) or Metropolitan Divisions in the survey, Wenatchee, at number 5, was the highest ranking in the state. Seven other MSAs in the state were ranked on the top 30 list.

U.S. home prices rose in the third quarter of this year, but the rate of increase continued to slow and some areas experienced actual price declines. Nationally, home prices were 7.73 percent higher in the third quarter of 2006 than they were one year earlier.

Appreciation for the most recent quarter was 0.86 percent, or an annualized rate of 3.45 percent. This reflects a further slowdown from that reported for the second quarter when the quarterly appreciation rate was 1.3 percent and the annualized rate was 5.1 percent. The quarterly increase is the lowest since the second quarter of 1998. The figures were released by the Office of Federal Housing Enterprise Oversight (OFHEO) as part of the House Price Index (HPI), a quarterly report analyzing housing price appreciation trends.

"Our newest data confirm last quarter's data that the housing market is in a decidedly different stage," said OFHEO Director James B. Lockhart. "With U.S. house prices growing less than one percent during the third quarter, it provides more evidence that the long forecasted national deceleration in house prices is occurring. Given the five-year appreciation prior to this quarter of 56.8 percent, the slowdown is not unexpected. There are still some areas where appreciation rates remain very high but now they are the exception rather than the norm," Lockhart said.
Since the spring of 2004, year-over-year house price appreciation has fallen from a peak of 13.9 percent to 7.7 percent this quarter. Despite the deceleration, house prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index (CPI). CPI prices rose 3.1 percent.

The findings of the third quarter HPI show varying trends in different parts of the country.
The quarterly appreciation rate fell in seven of the nine Census Divisions. The West North Central and East North Central divisions had small increases over weak second quarters.
Five states -- New York, Rhode Island, Michigan, New Hampshire, and Massachusetts -- saw price declines from the second to the third quarter of the year.

Michigan was the first state to show a year-over-year decline in more than six years. Prices fell in Michigan 0.6 percent between the third quarter of 2005 and the third quarter of 2006.
Appreciation rates remain at or near record-setting rates in areas affected by Hurricane Katrina. Baton Rouge, Gulfport-Biloxi, and Mobile all had their highest four-quarter appreciation rates ever with four-quarter price growth of 14.1, 23.3, and 17.5 percent respectively.

Idaho now tops all states with the highest four-quarter appreciation rate with prices 17.5 percent higher in the third quarter of 2006 than they were a year earlier. Other states with still large year-over-year increases were Utah (17.4 percent), Oregon (16.9 percent), and Arizona (16.4 percent).

Quarterly price declines occurred in more than half the cities in California. Fifteen of 25 California cities in OFHEO's list of ranked Metropolitan Statistical Areas (MSAs) and Divisions experienced price declines relative to the second quarter.

"House prices continued to rise through the third quarter in most of the country, but generally at only low or moderate rates," said OFHEO Chief Economist Patrick Lawler. "The transition from sizzling markets to normal or weak markets has been orderly so far, and recent drops in interest rates lessen the likelihood that precipitous changes will occur."

OFHEO's House Price Index is published on a quarterly basis and tracks average house price changes in repeat sales or refinancings of the same single-family properties. Changes in the mix of data from refinancings and house purchase transactions can affect HPI results.

An index using only purchase price data indicates somewhat less price appreciation for U.S. houses between the third quarter of 2005 and the third quarter of 2006. That index increased 6.0 percent, compared with 7.7 percent for the HPI.

Find Your Home's Value Without Talking to An Agent!

Hello All,

Today we have some exciting news regarding an enhancement to our website, www.tk2homes.com. Many people want to know their home's value, but don't want to call a Realtor for a Market Analysis, fearing a high-pressure sales pitch to list their home.

Understanding this concern, we have changed our website so that you can search for SOLD listings in your neighborhood with criteria similar to your own home's attributes. You'll even be able to see the locations of these sold listings via an aerial map and look at the listing photos and details so that you can narrow the results down to the properties closest to your own.

Once you have a good starting figure based on this data, you'll have a pretty good idea of what your home might sell for. Then, if it looks like something you want to do or explore more, you can contact a Realtor for a more precise market price for your property. If, however, all you want is a general value, you'll have it without any soliciting calls from agents that want to list your home.

Want to give it a spin? Simply click this link to get started: http://www.tk2homes.com/Issaquah_Redmond_Bellevue_Sammamish_WA_townhomes_condos_microsoft_home_sales.shtml

Please note, however, that if your home is located in a recently constructed development, that your address may not register in the system until maps are updated by our provider. If this occurs, feel free to call or e-mail us or your own Realtor to request a market analysis. Just be sure, however, if you're not calling us, or are calling an agent you don't already know, to mention that you just want a value and are not interested in listing at this time, so that you avoid a conversation you don't want.

Enjoy this new service!
Tim & Keith

Attorney General Declares City Real Estate Tax Scheme Illegal

Frequently in the media and on television, Realtors are portrayed as sleazy, money-hungry salespeople who are only interested in their own well-being. This is far, far from the truth, but examples of the public service that Realtors provide rarely get any exposure.

Please see the article below from the Northwest Multiple Listing Service describing a recent attempt by a city to double-tax its citizens and how the local association of Realtors led gthe fight to stop it.

KIRKLAND, Wash. ( Oct. 30, 2006) – State attorney general Rob McKenna recently issued an opinion declaring illegal the City of Sultan's plan to increase real estate excise taxes while receiving a rebate on lost sales tax from Snohomish County.

The AG opinion was sought by State Representative Brian Sullivan (21st District) at the urging of the Snohomish County Camano Association of REALTORS®. The City's proposal would have raised Sultan's real estate excise tax to a rate of 2.28%, the highest in the State.

REALTORS® pointed out that the tax increase proposal was not economically beneficial to the City, or to homeowners, because Sultan would have to give up its retail sales tax to the County. The City attempted to circumvent state law by negotiating with the County to rebate the lost sales tax in addition to collecting the new real estate tax.

In his opinion, the Attorney General said "the Legislature chose to foreclose" such double taxation schemes. "State law requires cities to choose between the sales tax and the real estate excise tax ...a city may not escape the consequences of its choice by collecting both revenue sources."

"This decision shuts the door on any other cities attempting to double tax homeowners in this way," said REALTOR® Association President Dave Miles. "Many thanks to those members of the NWMLS who contacted Sultan and helped us defeat this illegal scheme."